Real Estate Portfolio

What’s the Best Way to Manage Your Real Estate Portfolio?

As you begin to grow and diversify your portfolio with real estate investments, you’re going to hear a lot about asset management, the types of assets you should add, and the best form of management to increase your wealth. As with most aspects of investing, the best solution seems to be a combination of solutions. Instead of solely investing in one type of asset or the other, and instead of subscribing strictly to one form of management or another, it’s best to have both passive and active assets in property management. Furthermore, you’ll get more out of your investments if you implement a combination of passive and active management styles for different parts of your portfolio.

Asset Management vs. Property Management

First of all, before we go any further, we need to clarify the difference between asset management and property management. Property management is a service that takes care of the regular tasks and hassles of your rental properties for you. A property management firm will take care of collecting rent, maintaining and repairing the property, staying on top of late fees, evictions when necessary, and they may also cover tenant acquisition and/or paying property taxes and other bookkeeping services, as well.

Asset management is a bit more abstract. This refers to the management of the assets in your portfolio. Asset management involves making decisions on what to sell and what to hold, what percentage of your portfolio should be in real estate and what percentage should be in stocks and bonds, etc.

When we talk about active asset management, we’re referring to a form of management that relies on manipulating your holdings and assets to gain more ROI by taking advantages of market inefficiencies, dips, and peaks. On the other hand, with passive asset management, you’ll keep an eye on your assets, but you’ll generally let them accumulate returns on their own, according to the market, instead of trying to gain more than apparent market value.

Passive Income with Active Asset Management

It’s important to be familiar with both property management and asset management, as you want your real estate investments to be passive streams of income for you. With good property management, you can collect returns on your rental properties without actively maintaining them.

At the same time, not all real estate has to be a passive asset. Thanks to real estate investment trusts (REITs), real estate investment clubs, real estate crowdfunding platforms, and other equity investment opportunities, you can have active real estate assets in your portfolio. In fact, depending on the market and your portfolio, you may have an asset that’s both a passive and active asset in property management.

What do we mean by that? Basically, you may buy shares in an REIT and maintain it as a passive asset that doesn’t need active management, but market activity may make it more profitable to treat those shares as an active asset to be held or sold to gain more capital that you can then put into another asset.

If you directly own a rental property, and you don’t intend to make being a landlord a full-time job, it makes no sense to make this an active asset or to actively manage it. You should be only as involved as choosing a good property management company to ensure the most income from the property for you, and it should sit in your portfolio as a passive asset with no active management.

However, the funds you gain from that rental property may need more active management, especially if you want to continue to grow your portfolio. Thus, you’ll need to determine what percentage of your portfolio should be allocated to real estate and, of that, what percentage should go to passive or active assets. Then you can more easily determine which types of investments to allocate your returns toward.

With just a little bit of attention, organization, and management of your portfolio, you can set yourself up with a great balance of investment properties that will grow your wealth while providing stability for your more active assets.